Insurers paid out a record $2.55 billion in claims in 2017

Wednesday, 14 February 2018

The Kaikōura earthquake accounted for nearly 40,000 settlements.

The number of insurance claims from 'extreme events' broke records last year, testing the sector's ability to keep up with nature.

The Insurance Council says total settlement cost of events in 2017 reached $2.55 billion.

A record-breaking total 66,570 claims settled in 2017 cost $2.55 billion.

Insurers settled 39,000 Kaikōura earthquake claims, 25,500 claims from extreme weather events, and 2070 claims for severely damaged homes from the Canterbury earthquakes.

Disaster economist and Victoria University professor Ilan Noy said: 'If last year was just a bad year and we then have two to three years of relative calm, then it's not going to have a long-term effect except for maybe a short drive up in premiums'.

Insurance Council chief executive Tim Grafton says the record number of settlements was a testament to the private insurance sector's effectiveness.

'The second possibility is that this isn't a random bad year and we are experiencing climate change and if that leads to more storms and more floods in the very near future, we are going to see a much bigger impact.'

* 'A year of two halves': 2017 weather breaks records

* Premiums to rise after record year of weather-related insurance claims**

Noy said the latter was more likely and insurance would not only become steadily more expensive, but would become unavailable in some places, especially high flood risk areas like Edgecumbe.

Flooding was big issue for insurance companies, she said.

The Earthquake Commission offers some payment for the clean up of the land after a flood, but most of the cost fell on private insurance companies, he said.

If insurance companies decide not to provide cover on flood-prone properties that could come as a shock to those affected, Noy said.

'Insurers only sell you coverage for a year, they never sell you coverage for more than that and they have no obligation to stay in any market longer than one year.

'If we tried to force any longer contracts, they would just walk away.'

Insurance Council chief executive Tim Grafton said, '2017 was a year that tested the insurance sector's ability to meet people's needs at some of the most stressful times in their lives'.

'Extreme events such as these create large numbers of claims simultaneously, which really puts pressure on insurers.'

The payout was the equivalent of paying almost $7 million every day for a year.

Grafton said the Canterbury statistics were especially important, as insurers continued to receive claims that were over the Earthquake Commission payout cap.

'Almost 800 claims were transferred in the year to 31 December,' he said.

Noy said that the cost of the Kaikōura earthquake, which accounted for the majority of the claims in 2017, was much higher than initially expected by insurers, especially in Wellington.

Noy said he has seen estimates by engineers that forecast 20 office buildings would be demolished because of damage from the 2016 earthquake.

It was also an expensive year for reinsurance companies, which insure the losses of insurance companies.

Reinsurance companies paid out to cover damage from hurricane Harvey, Irma and Maria as well as the massive rebuilds from earthquakes in Iran and Mexico.

Noy expected some of those losses to flow through to New Zealand insurance premiums.